AP5.3 (LO 1, 2) Basic Assertions and evidence An auditor is planning for the aud
ID: 2339900 • Letter: A
Question
AP5.3 (LO 1, 2) Basic Assertions and evidence An auditor is planning for the audit of a specialty retail store. Inventory is material, and items range in value from $1 to over $500. The type of merchandise carried in the store changes every season, and many items are specially ordered with and promotional packaging. Orders are placed six months in advance from overseas deposi inventory and prepaids are at risk of material misstatement. special branding suppliers. Large ts are required to be paid when orders are placed. The auditor believes the account balances for Required a. Identify the key assertions at risk in relation to inventory and prepaids. b. For each assertion, identify a type of evidence that would be relevant and reliable Source: Adapted from the CA Program's Audit & assurance exam, December 2010.Explanation / Answer
key assertions at risk in relation to inventory and prepayments
a. Prepayments assertion most at risk
1.Large deposits are paid 6 months in advance.may be of overstatement and the prepayment does not exist
Inventory assertion most at risk
1.store nature:retail store in which inventory is material and the type of merchandise changes every season therefore items value impaired
2.special branding and promotional packaging which is difficult to sell and return to suppliers after promotional period.
b. Evidence
1.Prepayments should be matched with unfulfilled contracts
2.a.inspection of inventory to search for out of date items
b. provision for return of items not sold.
evidence:prepayments should be matched to unfilled contracts
Thank You